Stocks recover on Boehner, euro pares drop

Traders work on the floor of the New York Stock Exchange, November 27, 2012.
REUTERS/Brendan McDermid

NEW YORK U.S. and European stocks recovered from early losses to post gains while the euro pared a decline to trade little changed on Wednesday as investors shifted into buying mode after perceived positive news on U.S. budget talks.

U.S. House Speaker John Boehner, an Ohio Republican, said he is willing to put revenues on the table if accompanied by spending cuts. But he repeated his opposition to raising income tax rates.

Boehner's comments came as U.S. indexes were marking session lows and produced a sharp turnaround that reverberated through other markets.

Investors remained skeptical over the plan agreed to late Monday by international lenders to reduce Greece's debts, but they were more focused on the positive news. The Greek deal opened the way for more aid to Athens to avoid a chaotic default, but details remain unclear and analysts worry it will not do enough to make Greece's debt viable.

Riskier sovereign debt of Italy and Spain bounced sharply in price, in part due to hedge funds taking profits on previous short positions following the Greece deal.

U.S. stock markets have been a prisoner of the shifting winds in Washington in recent weeks. The equity market has been under pressure following the re-election of President Barack Obama due to concerns about the impact on the economy of the planned package of tax increases and spending cuts known as the "fiscal cliff" due to take effect in January.

"There's only one issue in front of the financial markets, and it's the debate on the 'fiscal cliff,'" said Jack De Gan, chief investment officer of Harbor Advisory Corp in Portsmouth, New Hampshire. "That's the only issue out there, and I think in the short term, there's not much that we can do other than watch, and try to anticipate what's going to happen."

On Tuesday, stocks declined after U.S. Senate Majority Leader Harry Reid, a Nevada Democrat, expressed disappointment over the progress of the talks between Democrats and Republicans.

But Obama said on Wednesday he hopes he and Congress can reach an agreement to shrink the budget deficit before Christmas and urged supporters to press lawmakers to agree to a deal.

"Anything that points to a deal happening is going to be good for the market right now. Anything that points to a deal falling apart is going to be bad for a market. We are becoming myopically focused on this one issue, and I think that continues for a while longer," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

The MSCI index of global stocks .MIWD00000PUS was up 0.3 percent. The FTSEurofirst300 .FTEU3 index of European stocks rose 0.2 percent.

EURO SLIPS

In currency markets, the euro was little changed at $1.2940 as some traders bet recent gains made in the run up to the Greek deal were too far, too fast.

"The uncertainty brought by this (Greek deal) approach makes European assets, including the euro, vulnerable to global growth risks," Barclays Capital analysts said in a note. "For that reason we think the European muddle through amplifies the market's response to the fiscal cliff discussion in the U.S."

Ten-year Italian government bond yields fell to their lowest since February 2011, however, and Spain's benchmark 10-year note went to its lowest yield in a month.

The benchmark 10-year U.S. Treasury note was up 3/32, with the yield at 1.6284 percent.

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